KEY FEATURES OF THE MICROFINANCE BILL, 2006. A Presentation to the Workshop on the Role of Women in the Development of Microfinance in Africa by G. Omino at Nairobi Safari Club Thursday 28 th September, 2006. BACKGROUND TO THE ESTABLISHMENT OF MICROFINANCE.
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A Presentation to the Workshop on the Role of Women in the Development of Microfinance in Africa
by G. Omino
Nairobi Safari Club
Thursday 28th September, 2006
- e.g. agriculture, manufacturing, trade
- “market failure” argument
- subsidized interest rates
- low savings
- central bank financed government budget deficit
* Central Bank provided parastatals with liquidity (promissory notes)
* Weakened instruments of monetary policy (e.g unstable interest rates, exchange rates and price level; insolvent financial system)
- Central Bank slow to react to banking crisis
- directed credit led to inefficient use of capital
- public sector borrowing led to high inflation (e.g 78%)
- overvalued currencies led to import dependence
- non-performing assets rose due to poor trade terms and mismanagement
- IMF supported SAF/ESAF implemented
- World Bank supported SAC/SAL implemented
*to achieve non-inflationary, private sector led
- elimination of directed credit
- liberalised interest rates and exchange rates
- strengthening regulation and supervision
- bank restructuring (e.g. branch rationalisation)
- increased Central Bank autonomy
- developing financial markets (including microfinance)
Strategy Paper (PRSP - Sept. 1999).
- to facilitate sustained and rapid economic growth
- to improve governance and security
- to increase the ability of the poor to raise their incomes
- to improve the quality of life of the poor, and
- to improve equity and participation.
- Tier 3: no regulation (ROSCAs)
- Tier 2: non-prudential regulation (credit- only MFIs by MoF)
- Tier 1: prudential regulation (official
supervision of deposit-taking MFIs by CBK)
and Employment Creation (ERS): 2003 -
- Strengthen the stability of the financial system to reduce risk of financial crisis.
A Bill for
An Act of Parliament to make provision for the licensing, regulation and supervision of deposit-taking Microfinance business and for connected purposes
This Act may be cited as the Deposit-taking
Microfinance Act, 2006 and shall come into
operation on such date as the Minister may, by
notice in the Gazette, appoint.
“core capital” means shareholders equity in the form of issued and fully paid-up shares of common stock plus all disclosed reserves, less good or any other intangible assets.
‘deposit’ means a sum of money received or
paid on terms under which it will be repaid,
with or without interest or a premium, and
either on demand or at a time or in
circumstances agreed by or on behalf of the
person making the payment and the person
receiving it, but does not include a sum of
Money which is paid as-
‘deposit-taking microfinance business’ means-
(1)This Act shall apply to deposit-taking micro- finance business.
(2) The Minister may by regulations -
(a) specify non deposit-taking microfinance
(b) measures for the conduct of the specified non-deposit-taking microfinance business.
(1) No person shall carry out any deposit-
taking microfinance business unless such person is-
(a) a company formed and registered under the Companies Act and the main objectives of such company is to carry out deposit-taking microfinance business; or
(b) a wholly-owned subsidiary of a bank or financial inst. Whose main objective is to carry out such business; and
(c) Holds a valid licence issued under this Act.
The Minister may prescribe categories of deposit-taking microfinance businesses based on geographical, administrative criteria or such other criteria that the Minister may deem necessary.
(1) An institution shall maintain minimum
capital requirements as set out in the First Schedule to this Act:
An institution shall not carry out any of the
following activities –
(a) issuing third party cheques;
(b) opening current accounts;
(c) foreign trade operations;
(d) trust operations;
(e) investing in enterprise capital;
(f) wholesale and retail trade;
(g) participating in the underwriting and
placing of securities, or
(h) purchasing or otherwise acquiring any land except as may be reasonably necessary for the purpose of expanding the deposit-taking microfinance business.
(1) No institution shall grant a loan or credit
facility to an end user single borrower where the loan or credit facility in the aggregate exceeds such limit of the core capital as the Central Bank may prescribe.
(2) No institution shall grant a loan or credit facility against the security of the shares of the deposit-taking microfinance business.
No institution shall grant a loan or credit
facility to an associate, officer or staff
member of the deposit-taking microfinance
business, in excess of such limits as the
Central Bank may prescribe.
(1) No person shall own more than twenty
five percent of the shares of a deposit-taking microfinance business.
(3) The provisions of sub-section (1) shall not apply in the case of -
(a) a wholly owned subsidiary of a bank or a financial institution;
(b) any other company which the Minister may, on the recommendation of the Central Bank, specify.
(4) No person shall transfer or cause to be transferred, more than ten percent of shares of an institution except with the prior approval of the Minister.
(1) A deposit-taking microfinance business
shall be managed by a board of directors consisting of not less than five directors and shall be headed by a chairman, who shall be a non-executive director.
A person shall not be qualified for appointment
as a director if such person is -
(a) is a minor or is under a legal disability;
(b) been convicted of theft, fraud, forgery, causing financial loss or perjury or has been imprisoned for three months or more;
(c) has been removed from an office of trust on account of misconduct, abuse of office, corruption or incompetence in the last ten years;
(d) is an auditor of a company licensed to conduct deposit-taking micro-finance business.
The financial year of a deposit-taking microfinance business shall be the period of twelve months ending on the 31st December in each year.
(1) An institution shall appoint, annually, an
auditor qualified under Companies Act and approved by the Central Bank.
(2) No institution shall remove or change its external auditor except with the prior approval of the Central Bank.
(4) The Central Bank and institutions may, in the ordinary course of business, in such manner as the Minister may by regulations prescribe, exchange information for the proper discharge of their functions.
(5) Regulations under sub-section (4) may provide for the establishment and operation of credit reference bureaus, for the purpose of collecting prescribed credit information on clients of institutions and disseminating the information amongst institutions for use in the ordinary course of business, subject to such conditions as may be prescribed.
(1) The Central Bank may intervene in the affairs of an institution in the following circumstances -
(a) where the institution has contravened the
provisions of this Act or conditions upon
which the license was granted;
(b) where the business is being conducted in a manner detrimental to the interests of the depositors or creditors;
(c) where the institution has failed to
maintain the minimum core capital;
(d) where the institution has insufficient
assets to cover its liabilities.
(1)Where an institution becomes insolvent, the Central Bank may appoint the Deposit Protection Fund Board established under the Banking Act, to be a liquidator of the institution; and the appointment shall have the same effect as the appointment of a liquidator by the High Court under the provisions of the Companies Act.
(1) All institutions shall contribute to the Deposit Protection Fund established under the Banking Act.
(1) The Deposit Protection Fund Board shall,
by order in the Kenya Gazette, determine the amount of balance to be maintained by a customer of an institution, as a protected deposit.
No person shall use the word “deposit-taking microfinance business” or any of its derivatives or any other words indicating the transaction of deposit-taking microfinance business or the equivalent, in the name, description or title under which it transacts business in Kenya or make any representation that the person transacts deposit-taking microfinance business unless such person is licensed under this Act.
A person who contravenes any provisions of this Act commits an offence and is liable on conviction to a fine not exceeding one million shillings or to imprisonment for a term not exceeding three years or to both.
(1)The Central Bank may, with the approval of the Minister, make regulations prescribing anything which under this Act may be prescribed by the Central Bank;
(2) Subject to this Act, the Minister may, on the recommendation of the Central Bank, make regulations generally for the better carrying out of the provisions of this Act.
Regulations to include the following: